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The dark tunnel of the economic model

2024-02-11 14:20:00, Ekonomi CNA

The dark tunnel of the economic model

During the three decades of transition, Albania has not wisely used the human and natural potentials to increase well-being and now has its feet tied to lead the country towards a sustainable economic model.

First, the rapid shrinking of the population, especially of young skill groups, limits to the point of impossibility the development of innovative branches that can bring more income.

From 2011 to 2022, according to INSTAT data, 250,000 people have left the country, where over 80% represent young age groups, up to 29 years old. Parallel to the shrinking population, there is a sharp decline in educational skills and quality.

The PISA international knowledge test showed that Albania is two decades behind in the education sector, according to the test conducted in 2022 with 15-year-old students. In mathematics, they received 368 points, 69 points less than in the 2018 test and 21 points less than in 2012, the decline was similar in literature. These results show that young Albanians lack elementary knowledge.

Second, the high concentration of economic growth towards non-productive sectors such as construction and related activities increase pessimism about the outlook, at a time when our country has a lot of untapped natural resources (minerals and energy) and has a competitive climate for tourism and agriculture.

The consequences are being seen now, when after three decades of transition, the economy is increasing its dependence on the construction sector, which from the way it is developing, is increasing inequality and demotivating the creation of new families in the main urban centers.

In 2022, the construction sector and real estate activities accounted for 17.5% of added value, with a systematic increase from 2019. Economic growth in 2023 is expected to reach 3.5%, with the main contribution of construction 0.7% points and services , with 2.6% points, while the contribution of agriculture and Industry will be negative.

The concentration of growth resources in some sectors, mainly in construction, has made the distribution of welfare to the needy strata inelastic. Between 2002 and 2008, in our country, economic growth of 1% of GDP was accompanied by a reduction in poverty by 1.2%, according to World Bank calculations.

After 2014, the elasticity of growth deteriorated. A 1% increase in GDP resulted in only a 0.8% reduction in poverty, WB economists calculated.

The rigidity of the distribution of economic growth was clearly observed during the pandemic year, where Albania had the lowest economic decline with -3.4%, after Serbia, but, on the other hand, the number of poor people increased more than in any country other. Currently, Albania has a quarter of the population in relative poverty (6.7 USD per day).

A group of experts from international financial institutions and from the country pointed out the challenges of Albania's economic model and gave suggestions to "Monitor" on how the economy can develop a healthy growth model, which should be based on investments in human capital and education .

Emanuel Salinas, the World Bank Manager for Albania, believes that human capital is the heart of the country's development trajectory and its ability to progress towards EU membership and the approximation of income and living standards to the European Union average.

To put it simply, Albania cannot become a strong, advanced and higher-income country without engaging an equally strong and productive human capital. According to him, the Albanian population can increase its productivity by 40% throughout its life, through improvements in health and education.

Anke Weber, head of the mission in Albania of the International Monetary Fund, has the same vision, who appreciated human capital as the foundation of sustainable development. "Accelerating the emigration of the Albanian labor force would worsen the challenge of the tight labor market, hindering productivity growth.

It is necessary to decisively implement policies for the development and preservation of human capital, which would promote possible growth and improve living standards", - said Weber. Population aging and continued labor emigration represent two of the main sources of concern in the medium term.

Ms. Ekaterina Solovova, head of the EBRD's Albania, notes that rising levels of youth migration, combined with an aging population, are expected to deepen the demographic crisis. She adds that curbing immigration should be one of the main objectives of economic and social policies, by attracting more Foreign Direct Investments in productive and service sectors with more productive work and better wages.

While local experts, in addition to human resources, consider it dangerous to shift the economy from production to services. During 2023, a strong contraction trend of the industry and manufacturing sector was observed due to the strengthening of the local currency and the increase in domestic costs.

On the other hand, tourism further boosted the service industry. But for economist Panajot Soko, the Albanian economy should be based on Albanian production.

The market of products is stable, with a very high rate of appreciation, while the market of services, also due to technological and social advancement, is unstable, with very high rates of depreciation.

For example, the case of postal services, or telephone service. Today, due to the Internet, both of these industries have been reduced to the maximum and telephony will soon die as a service. The billions invested in wireless interconnection all over the world will come to an end.

Because consumer services are like that. Restrictions during the pandemic in 2020 showed that countries dependent on tourism suffered a sharp economic decline compared to countries that had the main branch of production.

Consequences of returning to construction

Construction has become the engine of economic growth in recent years. In 2022, the sector contributed 11.1% points of value added from the 9.4% points it contributed in 2019. This contribution increased further in 2023, the preliminary data refer.

In 2021, nearly a quarter of businesses on the Monitor 200 list, by revenue, were from or related to construction, more than any other sector. But all this growth has not translated into employment and higher incomes.

INSTAT data refer that the construction sector grew by 20.6% during 2022, but the contribution to total employment decreased to 7.6%, from 8.1% that was in 2021.

Most of the work processes in the sector are based on labor, but the expansion of the sector has not affected either employment or budget revenues.

The construction sector suffers from high informality, which appears to have increased further in the past year. Studies by the International Labor Organization (ILO) estimate that construction is the sector with the highest informality among the non-agricultural sectors, with around 60%.

Currently, Albania is the poorest country in Europe and has the highest exposure of the construction sector on the continent. According to Eurostat, in 2022, construction contributed 11.2% of gross value added, while in the EU, this sector contributed 5.5%.

After Albania, construction has a high weight in the economy of Kosovo, with about 10% of the added value, this is because many construction companies from Albania are building in Kosovo.

The concentration of construction in housing, especially in Tirana and the coast, which is often not justified by legal sources, has worsened the demographic indicators of the capital. A major emigration survey conducted in 2019 found that over 10% of households in the capital had emigrated between 2011 and 2019, the highest of all counties.

The capital, which used to be the center of gravity for young people with skills from other counties, has lost this role. The high prices of apartments even in the peripheral areas discourage young people from starting a family in Tirana and instead prepare to emigrate.

The population of the capital increased by only 5,757 people in 2022, the lowest stock since the beginning of the transition. From 2011 to 2016, the population of Tirana increased by 16-17 thousand new residents per year, but this flow began to decline after 2015, due to the return to high levels of family immigration and the maturation of internal movements.

While population growth in Tirana has slowed down, construction areas and prices have also increased. Official data refers that from 2019 to the end of the 9th month of 2023, construction permits were issued for a new area of ??over 5.7 million square meters in Tirana alone, with a 400% increase compared to 2015-2018.

According to the Bank of Albania, the average price of houses sold in the first 6 months of 2023 has increased by 11.6% compared to the previous 6 months. In 2022, house prices increased by over 17%, at rates three times higher than the historical average.

The new housing stock is serving more as an investment method for money with unconfirmed sources than for the real needs of the country's economy. Investments in tall towers in the center of the capital, apart from creating environmental pollution and traffic difficulties, do not serve the economy.

On a national scale, the number of businesses with over 50 employees decreased by 3.8% from 2018 to 2021, while in Tirana, this category increased by only 1.3%. Large enterprises in Albania are low-productivity and concentrated in the fashion sector and the processing industry, which requires low-skilled workers and uses silos in the suburbs.

The former Deputy Minister of Finance, Sherefedin Shehu, says that the sources of economic growth are concentrated in sectors with short-term impact, due to the natural limits of their development and growth, as well as the "one-time" or "only" effect. once" that the housing construction sector has in economic growth. Housing construction does not contribute to long-term economic growth and productivity, as happens with investments in infrastructure, industry, agriculture, he said.

For the economist Panajot Soko, the biggest problem is the fact that the Albanian economy seems to have already made informal money and its effects a vital part of it. Without informal money, the Albanian economy would collapse today.

"Imagine a scenario where the euros coming from informality are cut off in one day. With crippled exports and a high need for consumer goods, the exchange rate would fly and 1 Euro would sell for 130 Lek or 140 Lek, as it was before the informal money resurgence of 2016 onwards.

Consumption falls, banks fall, the Lek then cannot stop devaluation, then recession and finally deflation", he warns.

The dark tunnel of the economic model

The shift from production to services

Last year, the economy accelerated the shift from manufacturing to services. The fall of the Euro, the increase of the minimum wage, the weak demand from abroad are leading to bankruptcy of many factories, while our economy is increasing its dependence on imports.

In the third quarter of 2023, the industry recorded a decline of 8.2%, the largest since 2020, when the entire world was locked down by the Covid-19 pandemic. On the other hand, an increase in the service sector was observed due to the high flow of tourists.

The country's economy is expected to grow by 3.5% in 2023 and the services sector will contribute 2.6% points, due to positive developments in tourism, according to the Ministry of Finance. But economic experts and businesses think that the orientation of the economy from production to services is not a safe and sustainable step.

"Today we have a shift of 'financial attention' towards the service industry, but I believe that this will not be a stable premise to define the latter as a permanent substitute column", says expert Panajot Soko.

The idea is that the consumer services industry, which includes hotel services, tourism, entertainment, etc., are highly interconnected and require constant flows of people. Today as we speak, it seems that Albania is going through an economic phase called "discovery".

"There will come a day when Albania will no longer be this country that needs to be discovered.

And at that moment, stripped of this competitive advantage that we have today against our economic competitors, do we have other competitive or comparative advantages that will be able to keep our numbers high?

Do we have better infrastructure than the countries we compete with? Do we have better quality than the countries we compete with?" - raises the concern of Mr. Soko.

For this, the example of Italy serves us, which for a long time has been a leader in consumer-based service industries, but today is doing what it can to be oriented towards production and to detach as much as possible from the dependence it has on that industry. , because services no longer meet the needs of the economy.

And such cases are endless. The consumer service industry is considered more of a diversifier in the economy than a primary pillar, precisely because of its volatility.

INSTAT reported that in 2022, the number of businesses whose main activity is accommodation has increased, with an annual expansion of 23%. Official data from INSTAT showed that hotels and restaurants contributed to 5.3% of total paid employment at the national level, with the same weight as in 2021.

Positive developments in tourism did not affect the general rate of unemployment, especially among young people. In the third quarter of 2023, the official unemployment rate for young people aged 15-29 reached 22.0%, with an annual increase of 1.6 percentage points.

On the other hand, the industry is in a difficult situation, as it is losing the advantage of the free arm of the labor force and is being hit by the devaluation of the euro. Experts and businesses in the sector announce that the bankruptcy of production units has chain consequences from education, taxes, employment, destroys supporting industries and destroys the 20-year work that the country has done in creating "Made in Albania".

Shifting the economy from production to import will bring the country long-term negative consequences, says the chairman of the Association of Exporters, Alban Zusi, who also operates in the agro-processing sector.

Ai thotë se falimenti i njësive të prodhimit jep pasoja zinxhir që nga arsimi, taksat, punësimi, shkatërron industritë mbështetëse dhe rrënon punën 20-vjeçare që ka bërë vendi në krijimin e produkteve “Made in Albania”.

Inovacioni dhe industria financiare, kontributi ne ekonomi me ulje

Që ekonomia të rrisë vlerës e punës, vendi duhet të orientohet nga sektorët me vlerë të lartë si inovacioni dhe shërbimet financiare.

Sipas Eurostat, në vitin 2022, sektori i informacionit dhe komunikimit në Shqipëri kontribuoi në 3.4% të vlerës së shtuar bruto, nga 3.5% në vitet 2020 dhe 2021, gjithashtu aktivitetet financiare dhe të sigurimit kontribuuan në 2.3% të vlerës së shtuar bruto nga 2.4% që ishte në dy vitet e mëparshme.

Në Europë, pesha e këtyre shërbimeve është më e lartë. Sipas Eurostat, në vitin 2022, informacioni dhe komunikimi kontribuoi me 5.4% të vlerës së shtuar bruto dhe aktivitetet financiare, me 4,4%.

Perspektiva e vendit tonë për t’u zhvilluar në këta sektorë është e kufizuar. Në sistemin parauniversitar, lënda e Teknologjisë së Informacionit jepet nga mësues pa kualifikim  dhe shkollat nuk janë të pajisura me teknologji dhe internet.

Teksa ekonomia e vendit në këto 30 vite tranzicioni është rritur nga viti në vit, përfitimet nga rritja nuk po reflektohen te kapitali human, sidomos te të rinjtë.

Pas emigracionit të lartë të viteve, zhvillimet e brendshme në sistemin arsimor dhe tregun e punës për të rinjtë tregojnë përkeqësim.

Një botim i fundit i INSTAT mbi mirëqenien e adoleshentëve tregoi se në vitin 2021, gati 32% e 20-vjeçarëve nuk ishin në shkollë dhe as në punë. Gati një e treta e grupmoshës 20-24 vjeç nuk bën asgjë për formimin profesional, qoftë nga arsimi, qoftë nga tregu i punës.

Bujqësia pa produktivitet, po rrit sërish peshën në ekonomi

Bujqësia është sektori më i madh në vend si në PBB dhe në punësim, por ndërkohë importet e ushqimeve në vend ishin 2.6 herë më të larta se eksportet më 2023, çka tregon strukturën “primitive të ekonomisë”.

Sipas Eurostat, bujqësia kontribuoi me 21.3% të vlerës së shtuar më 2022, me rritje nga viti 2021. Në vitin 2022, bujqësia kontribuoi me gati 34% të punësimit në vend, me rritje të lehtë nga 2021. Megjithëse gjatë 9-mujorit të vitit të kaluar ka rënë me 0.15%, bujqësia mbetet sektori më i madh i ekonomisë, por kontributi i saj në punësimin me pagë është gati i padukshëm.

Ish-ministri i Financave, Arben Malaj, thotë se bujqësia shqiptare, edhe pse është sektori më i madh i ekonomisë, është zhvilluar nën potencial.

Z. Malaj tha se kërkesa në rritje për produkte bujqësore dhe blegtorale, aq më tepër që kemi rritje të gjeografisë dhe zgjatje të sezoneve turistike, orienton dobishmërinë e rritjes së mbështetjes së bujqësisë.

Nëse në vitin 2023 erdhën rreth 10 milionë turistë, rritet kërkesa për produktet ushqimore dhe për shërbimet plotësuese.

The effect of infrastructure projects that will be completed within 2024, the effective making of EU funds and with priority of funds from IPARD as early as 2024, a significant resource to make Albanian business as competitive as possible, said Mr. Malay.

If agriculture is not linked to tourism, most of the funds coming from tourists will be sent back to buy food.

But instead of the budget funding for agriculture increasing, they decreased by 9% in this year's budget.

The data from the tables accompanying the 2024 budget show that the biggest cuts are in the funds allocated to farmers and rural development. The support measures for agricultural production and rural development will be 7.1 billion ALL, from 10 billion ALL this year, with a 28% reduction, or about 25 million euros.

This decrease is a big blow, at a time when the European Union has also blocked funds from the IPARD scheme, due to the corrupt affairs it has found with the allocation of funds in our country./ Monitor.al

The dark tunnel of the economic model

The dark tunnel of the economic model

The dark tunnel of the economic model

The dark tunnel of the economic model

The dark tunnel of the economic model

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